Boiling America’s economy

IT IS said that if you put a frog in boiling water, it immediately jumps out; but if you put it in cold water and gradually turn up the heat, it does not react – and is eventually boiled to death. Something similar can happen to economies.

If inflation accelerates, the public demands that leaders rein in prices with tighter macroeconomic policies. But if the authorities start interfering in individual industries with ad hoc tariffs, price controls, subsidies, taxes, and regulations, there is no such popular reaction, so the interventions are allowed to continue creating inefficiencies and undermining growth.

Both inflation and the ad hoc interventions – sometimes referred to as industrial policy – distort the economy and result in lower economic growth. But inflation triggers a quick response.